UnitedHealth's profits rise while future gains may be impacted by reform

Apr 21 2010

The Associated Press: "Insurer UnitedHealth Group Inc. trumped first-quarter earnings expectations and raised its 2010 profit forecast Tuesday, but a meager stock reaction showed investors haven't forgotten about the recently concluded health care reform push. The Minnetonka, Minn., insurer said it trimmed the percentage of premium revenue it spent on medical bills for its commercial insurance to 79 percent, down from 81 percent in last year's first quarter." Such an announcement is usually good news because it is evidence that "costs are falling and the insurance is priced correctly. But next year, the new reform law that aims to cover millions of uninsured people will require insurers to spend at least 85 percent of their premium dollars on medical costs for commercial insurance. The 'medical cost' definition has yet to be clarified, but analysts say UnitedHealth's performance may be too good for some investors who worry about what the insurer will have to do raise that percentage."

"UnitedHealth is the largest publicly traded health insurer based on revenue and the first to report earnings every quarter. Its performance is often seen as a bellwether for the sector" (Murphy, 4/20).

Reuters: "'These gains aren't sustainable,' said Tim Nelson, a healthcare analyst with First American Funds. 'These stocks are pricing on 2011 earnings, which are going to be significantly impacted by healthcare reform.' While hailing the company's strong overall results, some analysts also said UnitedHealth might draw unwanted attention by posting a blowout quarter amid continued negative political sentiment directed at the industry." In a hearing today on the topic of health insurance premium increases, for instance,  Senate Health Committee Chairman Tom Harkin, D-Iowa, pointed to UnitedHealth's earnings report. Also, UnitedHealth is the first health insurer to report results since Congress passed the health overhaul, which "imposes new regulations and fees on the industry as it expands insurance to 32 million Americans without coverage and ends practices such as refusing to cover people with pre-existing conditions" (Krauskopf, 4/20).

Bloomberg BusinessWeek: "While the recession cut commercial membership by 900,000, Chief Executive Officer Stephen Hemsley today raised his enrollment projections for those policies as well as Medicaid and Medicare plans. The annual forecast reflects an improving economy and more certainty about effects of the new U.S. law overhauling the health-care system, said Thomas A. Carroll, an analyst with Stifel Nicolaus & Co. in Baltimore. ... UnitedHealth said enrollment in its private plans dropped 3.5 percent to 24.5 million, depressed by job losses. The commercial declines were partly offset by an 18 percent jump in government-backed Medicare Advantage policies for the elderly and a 13 percent rise in Medicaid for low-income beneficiaries."

Karen Ignagni, president and CEO of America's Health Insurance Plans, also was scheduled to testify at today's Senate hearing" (Nussbaum, 4/20).